We can quantifiably say that Elon Musk has been the best tech entrepreneur of the modern era. Only one other one — Jim Clark– has built three companies that exited for north of $1 billion, and he needed the dot com bubble to do it. Musk has done it four times, if you count SolarCity, across different industries and in difficult financial times.
And yet, even Musk is still scrapping and fighting for investors’ respect. Witness the current flap about his plan to merge SolarCity with Tesla, which some investors criticize as a scheme for him to bail himself out.
That isn’t how Musk sees it. But he’s used to seeing the world a different way.
Back in 2012, I did an in depth on-stage interview with Musk about the earliest days of his companies, how he had the courage to build a rocket even though he’d never built any physical product before, about his unusual friendship with Peter Thiel, and about the lowest time for him: 2008. “It looked like all three companies were going to die, and I was also going through a divorce,” he recalls.
That should give every entrepreneur comfort: Even Elon Musk almost ran out of capital.
I started out asking him one question a lot of people have wondered from time to time: Is he crazy?
Sarah Lacy: You seem to play this game differently than everybody else. In the history of Silicon Valley, there’s only one guy who’s created three companies that were worth more than a billion dollars each. That’s Jim Clark. He did it with Silicon Graphics, legitimate company, Netscape, legitimate company, and Healtheon, which never would have been a billion dollar company without a bubble.
Elon Musk: True.
SL: All of those were in the same industry… You’re the only other guy who has done it, and you’ve done it with payments, probably one of the hardest industries to disrupt on the Web, cars, and going to space.
EM: SolarCity, too
SL: Are you a cofounder for that one?
EM: No, they offered to have me be listed as a cofounder, but I thought that, although I had suggested the initial idea, I did not put enough sweat equity into it to be considered such.
SL: You should have been, because then you could have been the first guy with four. Is part of the reason you’ve done this that you are sort of crazy? Are you lucky? What is it?
EM: I’ve been thinking about that lately. I wonder. I think I probably am a bit crazy, but maybe that’s a healthy sign. At the point at which you conclude you’re not crazy at all, then you probably are.
SL: There’s one story that I’ve heard about you.
EM: Do I seem crazy?
EM: I probably do.
SL: I’ve always said that about you. Here’s the story that made me think you were crazy. You can tell me…
EM: Does this involve “The New York Times?”
SL: No, this is the story that made me think you are crazy. I heard right after you sold PayPal, before the other two companies, you went and bought a McLaren S1…
EM: F1, yes. I had it for several years, and I put 11,000 miles on it. I drove it from LA to San Francisco. It was my daily driver, which is a crazy car to have as a daily driver, particularly on the 405.
SL: I understand when you got it you were driving down 280, and you wrecked the car. You get out of the car. You’re doubling over with laughter. The person with you said, “Why are you laughing that you just wrecked this car?” You said, “No, you don’t know the funny part. It wasn’t insured.” Is that true?
EM: Well, the punchline is correct. I was driving up Sand Hill Road with Peter Thiel, a cofounder of PayPal. We were actually driving to see [Sequoia Capital investor] Mike Moritz. This is in 2000. We were driving up Sand Hill Road. I didn’t really know how to drive the McLaren. Peter says, “So what can this do?” Probably number one on the list of famous last words I said, “Watch this.” I floored it and did a lane change on Sand Hill. The McLaren has no traction control or anything. It only weighs a ton, so it has massive power. It can break the wheels free at 80 miles an hour. We broke the rear end free and started spinning. I was going straight and then turned. I remember seeing the cars coming towards me while I was going backwards.
We hit an embankment, sort of a 45‑degree embankment on Sand Hill, which tossed the car into the air like a discus. It kept rotating with about three foot of air clearance, according to witnesses and then slammed down on the ground going the original direction. We blew the suspension out. It didn’t actually wreck the car. The core chassis and the engine were OK. All the glass, the wheels, and everything were shredded. There was massive body damage in the front and rear.
SL: Did you start laughing?
EM: I don’t recall laughing. I could have been laughing in shock, but I don’t recall laughing. Then Peter hitched a ride to Mike. I waited while the fire truck and the ambulance arrived. Then finally the…
SL: Did Peter Thiel literally hitch a ride?
EM: Yeah, over to Sequoia.
SL: That’s amazing.
EM: Once the car was taken care of, then I hitched a ride too, and we continued the meeting.
SL: I’m picturing you and Peter Thiel, like that scene in “Tommy Boy” with the deer. You’re both like, “Ah!”
EM: Yeah, really. Lucky to be alive, really.
SL: I should say so. Is there a parallel with how you build companies and that story?
EM: I hope not.
SL: “Let’s see what this thing can do?”
EM: Yeah, “watch this.” That could be awkward with a rocket launch. It’s one thing if you’ve got a one‑ton car versus a million pounds of TNT equivalent.
SL: That is a little dicier. One of the things I find so interesting about you, the rest of the PayPal guys, they get done with PayPal and they start starting and investing in Web 2.0 companies at a point in time when everyone said, “That’s insane. That’s insane. The Internet will never come back.” They were considered the crazy ones.
Meanwhile you moved to LA and start working on SolarCity, SpaceX. Tesla is a glint in your eye. Will you ever do an Internet company again? Do you find the Internet boring?
EM: I think it’s unlikely that I’ll do an Internet company again, not that I find the Internet boring. I think I’m relatively net‑savvy and interested in the Internet and what’s going on. I don’t ever want to be the grandpa who doesn’t do email or something like that.
I’m trying to allocate my efforts to that which I think would most affect the future of humanity in a positive way. I think there’s lots of entrepreneurial energy and financing headed towards the Internet, whereas, in certain sectors like automotive, solar, and space, you don’t see new entrants. There’s not a lot of capital going to startups and not a lot of entrepreneurs going to those arenas.
The problem is that, in the absence of some new entrants into an industry, you don’t have that force for innovation. It’s really new entrants that drive innovation more than anything. That’s why I have devoted my efforts to those industries. They are industries that require quite a bit of capital to get going.
Even with SpaceX, I invested…my proceeds from PayPal after tax were about $180 million. $100 million of that went into SpaceX, $70 into Tesla, and $10 into SolarCity. I literally had to borrow money for rent. That was a close call.
SL: Was that the plan?
EM: No, that was not the plan. It ended up being double in most cases. With SpaceX I thought it would be $50 million. With Tesla I thought I’d be putting in $25 million, maybe $30 million.
SolarCity actually went really well. That’s the one where I wasn’t a cofounder, so maybe that’s a good sign. I should cofound less stuff.
SL: What happened? Why did you have to put more money in the other two? Did investors flake?
EM: I didn’t actually seek investor funding for the first three rounds of SpaceX. The first thing that investors want to ask you is, “Tell us about prior successes in this field. What can we compare this to?” When you’ve got the donut in the success category and a lot of symmetry full of failures, then they’re not that keen.
Rockets are pretty far out of the comfort zone of most venture capitalists. We were able to get venture funding after we had made some progress and demonstrated that we were able to almost get to orbit.
Credit goes to Founders Fund, which is obviously some of my compatriots from PayPal, Peter Thiel, Luke Nosek, and other guys. They invested before we got to orbit, so credit to them for that, but I did have to show that I could actually make stuff. I had never actually made physical stuff before SpaceX, let alone rockets.
SL: You started with a rocket?
EM: Yeah, that’s a hard one. The probability of success was low. In fact, when I started SpaceX, I thought that the most likely outcome was failure. I think to have any other expectation would have been irrational.
SL: Why did you want to do it? For Tesla it seems more obvious. Save the planet. It’s fairly obvious why it’s good for humanity. Why did you feel like SpaceX needed to be done?
EM: If you look at the trajectory of space technology and progress, the pinnacle of that progress was around maybe 1969, 1970 with the moon missions. We made incredible progress in the ’60s, and then we were able to land on the moon.
Then with the space shuttle, you could only get to people to low Earth orbit. Now the space shuttle is retired, and there’s no trajectory of improvement. It’s a trajectory to nothing. I kept thinking that there would be some plan to send people to Mars, because that’s the obvious next step.
The actual origin of SpaceX is around 2001 or so, and I was visiting a friend of mine and he asked me what I was going to do after PayPal.
I said, “I’ve always been interested in space, but I didn’t think there was anything I could do in space as an individual.” My initial plan in space was actually to do a small mission to Mars with a greenhouse, essentially season dehydrated nutrient gel in a little greenhouse that would land.
You would hydrate the gel. Then you’d grow the plants, and you’d have this great shot of green plants on a red background. That would be the money shot, essentially.
People tend to respond to precedents and superlatives, and this would be the furthest that life has ever traveled, the first life on Mars, as far as we go. That would get people excited. I thought that would result in an increased NASA budget. Then we could send people to Mars.
You want to have a future where you’re expecting things to be better, not one where you’re expecting things to be worse. That was how things started out. Then as I learned more, speaking of crazy things, I went to Russia three times to negotiate a deal to buy a couple of the ICBMs in the Russian fleet. A strange experience.
SL: How do you even get into that negotiation?
EM: You talk to people who know people, and pretty soon you’re talking to the Russian Rocket Forces. It turns out Russia is quite a capitalist society. I definitely had some weird meetings in places that, I swear, looked like a sanitarium or something. I don’t know. It was very odd.
SL: We keep coming back to the theme of crazy.
EM: Yeah, seriously, this place had padded walls. “Why do you have padded walls?” It was weird. Then some Russian guy who was missing a front tooth started yelling at me. Because one of his front teeth was missing, there was spit flying at me in a place with padded walls. I was like, “This is really bizarre.”
SL: That was the moment when you thought, “I’m going to build my own rocket.”
EM: Yeah. When I got back from that third trip, I realized that the real issue, the reason we haven’t advanced in space, is because the cost of space transportation has become unaffordable. It’s become more and more expensive to do less and less in space. We really need to improve the technology of space transportation. That’s why I started SpaceX.
It may seem odd that I would start SpaceX with an expectation of failure, but bear in mind that my initial thing was to do essentially a philanthropic mission with zero percent chance of success from a financial standpoint. It would have effectively been a donation to the cause. Anything better than that is a win.
SL: I know people think of you as someone who has had a lot of success, but you had several failures within SpaceX before the recent launch. Can you tell us a little bit about what it’s like to put that much work into something, and be doing something that really no one else is doing?
EM: It super sucks. I have to tell you. 2008 in particular was awful because we had the third launch failure in a row of our Falcon 1 vehicle at SpaceX. The Tesla financing round that we were raising fell apart, because the economy was going into a tailspin.
It’s pretty hard to raise money for a startup car company in late 2008 when GM and Chrysler are busy going bankrupt. That was tough. Then SolarCity had to deal with Morgan Stanley. Morgan Stanley had to renege on the deal because they themselves were running out of money.
It looked like all three companies were going to die, and I was also going through a divorce. That was definitely a low point. Fortunately the fourth launch worked.
SL: It’s 2008, you’re going through a divorce, which some ‑‑ to borrow your word ‑‑ douchebag bloggers are writing about, to make it even worse.
EM: Yes, that’s true. In addition to all that stuff happening, I was getting dumped on massively in the press.
SL: Why do you keep going with all three? I feel like even a lot of great entrepreneurs in that situation would have been like, “I’ve already sunk everything I have in these companies, and I got to pick one.” but you didn’t. You kept doing all three. Why?
EM: That was a very tough call. At the end of 2008, that was probably one of the toughest calls I’ve had to make, because I could either reserve capital for one company or the other. Fortunately, SolarCity didn’t need a ton of capital, so they were OK, but between SpaceX and Tesla, it’s like if you’ve got two kids, what do you do?
Do you spend all your money to maximize probably the success of one, or do you try to keep both alive? Fortunately, it worked.
SL: You also had to step back in as the CEO of Tesla.
EM: Yeah. My goal was never to be the CEO of Tesla from the beginning. I had an interest in electric cars that goes back 20 years to when I was in college. In fact, I used to talk to my dates about electric cars. Probably not the best strategy.
I’ve had a long‑standing interest in electric cars, but since I was doing SpaceX, I knew that if I did try to start an electric car company and run it, that it would be extremely painful to run two companies. I really tried my hardest not to be the CEO of Tesla.
At any point from day one, I could have been the CEO, because I had majority control of the company, but I really tried not to. In the end ‑‑ it was at the end of 2008 ‑‑ I had to commit all of my reserve capital to Tesla, that wasn’t allocated to SpaceX. I felt I had to steer the ship directly. It was really not fun, like super not fun.
SL: I remember when we talked, back then you said this is “not at the fun level,” running these two companies.
EM: No. It’s definitely gotten a lot better. With SpaceX, since we’ve now had five successful launches in a row, and we were able to dock with the Space Station. With Tesla, we were able to raise enough capital to get the company to be able to produce the Model S and do the IPO.
I’ve got a much stronger team, a lot of added strength, both companies. I can go from essentially almost every waking hour being spent on the companies to 90 percent.
It’s a big difference, actually.
SL: Can we talk a little bit about ‑‑ across the companies ‑‑ your experience with venture capitalists? It’s been pretty varied, right?
SL: You’ve had good experiences, and you’ve had not so good experiences, is that fair to say?
EM: I’ve had a wide range, yes.
SL: What would you advise entrepreneurs to make sure they don’t live through what you did and the bad experiences? Can you tell us about the bad experience?
EM: One thing that’s important is if you have a choice of a lower valuation with someone you really like, or a higher valuation with someone you have a question mark about, take the lower valuation.
It’s better to have a higher quality venture capitalist who you think would be great to work with, than to get a higher valuation with someone where there’s even a question mark, really. I think that’s important. It’s sort of like getting married. I don’t know, maybe I haven’t been that good at that.
SL: Did you do that wrong? Did you maximize for valuation?
EM: I suppose in the case of the Tesla Series C. At some point, I think I’ll tell the full story, but…
SL: Not tonight?
EM: But not tonight.
SL: They did wait an hour.
EM: Right, I know. I’ll tell part of the story. There were multiple competing bids, but there were two competing bids. One was from Kleiner Perkins, the other one was from VantagePoint. Kleiner offered 50, at $50 million pre‑money, VantagePoint offered 70. I actually said to John Doerr that if John joins the board, we’ll do it at 50.
John felt that he had too many obligations, and that there was another partner at Kleiner who really wanted the deal, and so he could not supplant that person. I thought I would be OK if John Doerr joined…there’s a 40 percent difference.
That difference is pretty significant. I thought if John would be willing to join the board, then we could do that, but not if it was somebody else. Yeah, that was probably a mistake.
SL: Then they did Fisker instead, which…
EM: And that was their mistake.
Sarah Lacy is the Founder and CEO of Chairman Mom and Pando Media. She's been covering technology for nearly 20 years, previously for BusinessWeek, TechCrunch and many other publications. She's the author of "Once You're Lucky; Twice You're Good: The Rebirth of Silicon Valley and the Rise of Web 2.0" (Gotham, 2008); "Brilliant, Crazy, Cocky: How the Top 1% of Entrepreneurs Profit from Global Chaos" (Wiley, 2011) and the forthcoming "A Uterus Is a Feature Not a Bug" (Harper Business, 2017). She lives in San Francisco.